Emerging market experts, tracking the fluctuating prices, were generally optimistic on the long-term stability of energy-heavy economies such as Russia, Bolivia, Mexico, Kazakhstan. The overall feeling is that the prospect of further massive debt by the U.S. government and the diminishing value of the dollar will further encourage investments in productive assets, including oil. “The nature of the bailout, which appeared to be partially dependent on the political calendar, may have far reaching consequences that were unanticipated by the framers. It remains to be seen whether or not the bailout can bring the fragile financial system back to a state of extended expansion, which is highly doubtful, or, in the financial analysis, would it start addressing the new paradigm of the world financial system that has emerged in the 21st Century,” stated Alexander Mirtchev, chairman of the board of directors of Kazyna, the sustainable development fund of Kazakhstan.
Global Economic Security Rebalancing – Commodities Price Volatility as a Symptom of Upcoming Asymmetric Economic Cycles
As America’s top financial officials updated Congress on their proposed $700 billion plan to rescue the stressed financial markets, oil prices stabilized, for now, towards the $100 a barrel mark today after rising rapidly on Monday. Emerging market experts, tracking the fluctuating prices, were generally optimistic on the long-term stability of energy-heavy economies such as Russia, Bolivia, Mexico, Kazakhstan. The overall feeling is that the prospect of further massive debt by the U.S. government and the diminishing value of the dollar will further encourage investments in productive assets, including oil.
“The nature of the bailout, which appeared to be partially dependent on the political calendar, may have far reaching consequences that were unanticipated by the framers. It remains to be seen whether or not the bailout can bring the fragile financial system back to a state of extended expansion, which is highly doubtful, or, in the financial analysis, would it start addressing the new paradigm of the world financial system that has emerged in the 21st Century,” stated Alexander Mirtchev, chairman of the board of directors of Kazyna, the sustainable development fund of Kazakhstan. “It is not clear either, whether or not it will become a realistic solution for ensuring economic growth, or would degenerate into an instrument for rewarding failure, entrenching big government’s presence in the financial markets — a possible impediment to market efficiency.”
“The essence of the intervention is to establish a largely undeserved safety net for the financial institutions that have exposure to ‘toxic’ assets — predominantly derivatives of loans and mortgages that are unlikely to be paid,” continued Dr. Mirtchev. “This short-term crunch may have a long shadow. Although the markets initially welcomed the U.S. Government’s interventional stance, by yesterday enthusiasm abated significantly reflecting global concerns with Washington’s strategy.”
Dr. Mirtchev, the founder and CEO of the Krull Corporation, a company that provides high-level consulting services to businesses with interests in emerging economies, witnessed at first hand the collapse of the Soviet Union block. He stated that any stability brought by the bailout will benefit companies with investments in energy services and resource development, which have a strong foothold in energy-leveraged economies.
The obvious need for energy independence and diversification aside, Dr. Mirtchev said, energy players from the emerging markets are looking carefully at the interventionist stance, coupled with the statements coming from American politicians on the eve of the election. “The implication that, somehow, ‘foreign’ oil is evil is perceived in the emerging markets as demagoguery that does not reflect the economic realities or the genuine interests of consumers. Oil exporters are developing their oil and gas infrastructure in anticipation that the United States will remain a reliable customer of their commodities on the international markets.”
Dr. Mirtchev concluded that the fall of Lehman Brothers, the buyout of Merrill Lynch and the resulting bailout by the U.S. federal government may initially signal some stability that will likely assist the growth in emerging economies with significant energy supplies.
“The main questions about the bailout that remain unanswered are related to how the US government will exit from its new equity positions. And will it ultimately relinquish the commanding heights of the financial markets? If the bailout is to work, it should not punish entrepreneurs and stifle enterprise, which is indispensable for economic growth.”
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